Tuesday, October 20, 2009

THE basic needs of man are food, clothing, shelter and entertainment. Today, most of us have graduated from needs to luxuries. When the newspaper headlines were screaming inflation at 11.9 per cent, it became a topic of worry. Today, the challenges are not just high standard of living, high commodity prices, it's job loss too. How do you deal with meeting your basic requirements with less means to buy them?While eating just one meal a day is good for Yogis and is a nice way to cut down costs, that is not what I'm suggesting. Instead, Try something simpler.

1. Eat at home

Eating out can be expensive. If you are spending Rs 200 on eating out compared to Rs 50 at home, you would be surprised to know the kind of amount you are spending. A systematic investment plan of Rs 150 (200-50) a day saved for 30 years can give you returns in excess of Rs 5 crore!MUST READ:

2. Know what you are buying

Plan your shopping. If you fill your cart with everything that catches your eye, chances are you will be spending a lot more. Instead, plan your meals for the week ahead and make careful note of what you need to buy. Purchase only the items on the list, avoid the rest.

3. Wear your blinkers

Stores are designed to make you go through a long walk to reach for your most basic items. Reason -- you can tricked into buying what you don't really need. Most basic commodities are found towards the end of the store. So, the next time you go shopping, you could skip the other outlets and move towards your destination.4. Shop on a full stomach

When you're hungry and shopping, you may end up buying lot of things that look like food! You might also pick up what you don't really need. On the other hand, you can easily avoid unnecessary shopping when you're a full stomach.

5. Do you really need bottled water?

You can take a bottle of water when leaving home rather than buying when you're out.6. Shop sans the kids

Hungry, tired, cranky kids increase the amount of time it takes to get your shopping done. Kids can really bug you into buying things which are bad for your health and for your purse. Leave them at home when you go out shopping.

7. Buy in bulk

You can save a significant amount of money if buying in bulk. Pay attention to the prices and pick up the family size package if the per unit cost is lower. However, you need to realise that bulk buying has a dark side too! If you are not a big user of any particular product, it could mean wastage.8. Use store reward cards

If you visit a particular store often, you can sign up for their reward card. In some cases, stores raise their prices when they offer reward cards, and without the card your bill will certainly be higher. If the card offers other benefits, such as a preferred (or free) parking, free schemes, etc., be sure to maximize your benefits before they expire.

9. Buy local products

For instance fruits. Whenever I step into a big branded store, I was pushed into buying 'American grapes'. I fell for it once, and realized only on billing that it was Rs 400 a kg! The Indian variety is normally available for Rs 40. Locally grown or produced food is often available at a cheaper price because you don't pay for long transportation costs. Stick to them.10. Choose unbranded goods

There is a huge cost difference between a branded product and an unbranded one. Even in case of 'expensive' items like dry-fruits, if you buy it from a wholesale-retail shop you will find a 20 per cent price difference. Some branded foods like cornflakes, are more expensive than dry fruits on a per kilogram basis. If you thought potatoes were selling at Rs 12 a kg, you are correct, but when it gets converted to branded chips, it becomes a little expensive, about Rs 300 a kg!

11. Men are bad shoppers

It is not so much of a gender issue. But the truth is men do not have much patience and that shows while shopping. So, if you are a man, realize that shops know and understand this. So things are arranged in such a way that when you are in a hurry you will end up buying the most expensive items. Look around to find cheaper items.

12. Compare prices and stores

I personally do not compare prices and stores but my wife has a degree in this! She knows which shop is good to buy vegetables, branded goods, unbranded goods. And she plans her shopping accordingly.

13. Shop in sales offers

In India, September to December months are considered as 'festive season'. This is the time when most of the shopping happens. Surprisingly, Hindus, Muslims and Christians have some festivals for which they buy new clothes during this period. So, stores generally keep a pre-festive sale in July-August and a post-festive offer in January. Use these sales to build your wardrobe. You can even get good deals!14. Shop less frequently

The lesser the number of trips to the shop, the lesser you will buy! So, if you are making more trips to the store, it is time you reduced them.

15. Pay in cash

When you buy your day-to-day requirements with your credit card, you run the risk of paying your credit card dues late. So, for all the saving you have been doing, you may give it away in the form of interest. Cash is a good option. Besides, you tend to be more careful when making cash payments.16. Check your bill

You should check all the statements which have a financial implication be it your credit card statement, mutual fund statement or your groceries bill. Scanners are fine, but there are possibilities of mistakes. So, you must see the bill before you pay.17. Buy leather goods in monsoon and umbrellas in winter!Buying goods in off season will cost you less. If it's monsoon, check out for sale on leather goods and umbrellas in winter.

1. Plan for your goals and invest your money in the correct assets. Take professional help, if needed. Put the investments on auto pilot like a SIP, RD etc. That is what works best for most people. This will ensure that you can spend only the rest.

2. Understand how much you are spending by tracking the expenses. You will be surprised how much you’re spending on the “misc” head

3. Don’t borrow to spend. Credit card spends ensures that you do precisely that. Use a debit card instead.

4. Buy most provisions for a month at one go. You’ll end up spending less time, effort and money.

5. Do focused shopping. Write out what you want buy, buy that and head for the exit. Don’t take children with you on these occasions. They fill the shopping cart with unwanted fluff.

6. Don’t buy unwanted items or in huge quantity, just because there is some offer.

7. Don’t buy a toy due to your guilt that you are unable to spend enough time with your child. Try and find the time instead. You child wants you, not another toy.

8. Stop spending on that item, once you reach the limit in that month. For instance, if your entertainment allowance for the month is Rs 3,000 and that is spent by the middle of the month, then it needs to be dal-chawal and TV for the rest of the month.

9. Same goes for fuel. Long drives and excursions on weekends are out, once the fuel limit for the month is breached.

10. Don’t switch on the AC by force of habit. Use AC as required. Switch off fans/ lights and other appliances, when no one is around. In many households, TV is on, irrespective of whether someone is watching or otherwise.

Thursday, October 8, 2009

Top Ten Investor Fantasies!In the past few months if reports are to believed, lakhs of new investors have jumped into the stock market. Especially after they saw a small minority of experienced investors getting extra ordinary returns. Anyone who has invested in value buys would easily have made over 100%. With a little bit of more research and knowledge companies like LIC Housing Finance and Jindal Steel have given returns between 300%-500%. These have rewarded investors all on basis of value and not ‘hot tips’ that are manipulated.

Unfortunately many new investors don’t realize this and have a lot of fantasies and myths in their mind when they enter. I had them too when I started out! Here are a few of them:

1. I will spend time trading every day and won’t do anything else. Isn’t that how hot shot multi-millionaires make money in the movies?

2. My uncle has been investing for several years. I will get tips from him. Of course it doesn’t matter that my uncle is on the verge of bankruptcy for the fourth time and has turned into a alcoholic.

3. I have magical powers and any company I invest in will give me returns in excess of 100% within a week.

4. The first company I invested in gave me 10% in a single day. This isn’t just co-incidence and luck, but because I am investment genius.

5. Everything I hear on the business news channel and everything I read in the newspaper actually needs to be followed.

6. Rich investors watch every single move of the Sensex and know exactly where it is headed.

7. I need to get tips from everybody - specially my broker. I don't care about knowledge, it won't make me rich.

8. My broker exists only to make me rich and wealthy. He loves me a lot.

9. I need to sell all my assets and remove all my money from the bank and pour it into a single share that can rise by 1000%. I read about it on an online forum - it must be true.

10. No need to study the business model, research reports, read or study financial statements. Losers do that!

I had many of the above fantasies when I started. They lead to losses - luckily I started investing with very small amounts. Following any of the above will most certainly lead to losses. You can be smarter than me and learn from my fantasies!

Tuesday, October 6, 2009

MUMBAI: Everyone knows that fear and greed are the two key factors that drive the stock market. If you talk to any seasoned investors in the market, they would regale you with stories of how people got carried away by greed and lost all their money in the process. Stories about people spooked by ‘fear factor’ also do the rounds of Dalal Street at regular intervals. According to a study by SMC Capitals, “the elements of fear and greed are clearly visible in the trends of allocation of assets by the investors in terms of cash and stocks.’’

The trend, says the study, can be seen at the levels of market cap and bank deposits in the economy. When there is fear among the investing community, the bank deposits go up. And, when there is widespread optimism , the market cap levels go up. “If you look at investor behaviour in the last three years, the pattern is very clear: the first year was of over-optimism, the second was of over-pessimism and now it’s the recovery period. This trend is clearly visible if you look at the market cap and bank deposits (or the real wealth),’’ says Jagannadham Thunuguntla, equity head of New Delhi-based SMC Capitals.

In the study, SMC has compared the BSE market cap from the period starting January 2007, with the aggregate bank deposits in the banking system. The relative measure of the entire market capitalisation of BSE as a percentage of aggregate bank deposits in the entire banking system demonstrates the mindset of the investor community.

For example, in January 2007, the BSE market cap as a percentage of aggregate bank deposits was 152%, which means BSE market cap is 1.52 times more than the entire bank deposits. The figure kept on racing ahead during 2007 as the bull market gathered further momentum. By the time the bull market peaked in December 2007, the figure has reached 235%.

This means that with the deposits available, the banks couldn’t even buy half of the BSE stocks. At that time, the aggregate bank deposits were to the tune of Rs 30.47 lakh crore, whereas the BSE market cap was at Rs 71.69 lakh crore, probably signalling the exuberance in the capital market. By the time the bear market commenced in 2008, the BSE market cap as a percent of aggregate bank deposits kept falling. When the markets touched the bottom in February 2009, it had slid to 74%.

This means the entire listed stocks on BSE could be bought with aggregate bank deposits available with the banking system and it will still be left with 26% of the deposits. By this time, the total BSE market cap was to the tune of Rs 28.62 lakh crore, whereas the aggregate bank deposits were to the tune of Rs 38.48 lakh crore. Now, as the markets have started recovering since March 2009, again this level of BSE market cap as a percentage of aggregate bank deposits has crossed 100% levels and currently it stood at around 129% in August.

IDBI Bank’s executive director and head of personal banking C S Jain said, “Whenever there is fear among investors, they tend to go for bank deposits. Though there has been a rise in bank deposits during the last three years, the trend has been of people going in for short-term deposits that had a tenure of less than a year as they expect markets to bounce back and route their money to stocks,’’ he added.